Comparative Disappointment

Comparative Disappointment

A friend of mine has a client that inquired with disappointment that his account was down 2.5% when the S&P was up 0.5%.  He wanted to know why his portfolio was performing so poorly by comparison to the S&P.  At the time of this inquiry, the S&P was up 0.5%, Small Cap was down 5% and International was down about 15%.  

This has been a pretty typical refrain for many investors over the past 10 years as the S&P has soared while the rest of the indices, comparatively speaking, have limped along.

There is a saying, “Diversification means always having to say you’re sorry.”  This is true.  Just looking at the chart below, you can see that the S&P has been in the top three asset classes since 2013.  Owning pretty much anything else has felt like a foolish investment.  Until it isn’t anymore.

Being a true disciple of diversification means accepting that there are always, by design, pieces of your portfolio that are under-performing.  But the part of diversification that is the greatest benefit to investors is that by rebalancing and/or dollar cost averaging into those under-performing classes, you are actually buying low and selling high.

That is exactly the goal of every investor everywhere that I know of.  And yet, every time there are extended rough patches for particular asset classes, questions begin to arise of why someone should even own them at all.  

Take a look at the chart below and see if you can discern any pattern?

Novel Investor Asset Class Returns Table


Last I checked, buying low and selling high would mean you would sell the asset classes at the top of the chart and reinvest the proceeds into the asset classes at the bottom, no?  Rarely does anyone actually want to do that.  Because it runs counter to our psychology.

Maybe if you torture the chart long enough you can find some pattern for the period 2004 – 2018.  But that’s all it would be because there is nothing that will tell us what is going to happen over the next 10, 15, or 30 years.  The only thing we can do is intelligently diversify and wait for the historical trend-lines to return.

We do not know when the tides are going to turn, but historically speaking, we know it will turn at some point.  Let’s not get into the whole “timing the market” debate.  I much prefer to accept what I know and what I do not know. 

I do not know what asset class is going to perform best over any given period.  I can only see that through the rearview mirror.

I do know that anything other than establishing a portfolio built specifically for you and sticking with that portfolio is an attempt at timing the market in some form or fashion.  Embrace the historical averages and exercise some faith that a well-constructed portfolio over the long run will be one that accomplishes your goals as that should be your sole focus.  Not beating any particular index.

There is another saying about diversification from Nick Murray that I much prefer over the one above.  It goes something to the effect of, “Diversification is a deal with heaven.  You can’t make a killing and you can’t get killed.”

For anyone at or nearing retirement, the second part of that statement should far outweigh the first part.

What I’ve Been Reading:

Fear Not ( – This is a long, but fantastic read filled with historical perspectives on being a long-term investor.  Highly recommend.

2019 Tax Brackets, Standard Deduction, and Other Changes ( — WILL BE ADDED TO THE RETIREMENT RESOURCES PAGE.

Why People Prefer Bad News ( – “Studies consistently find that people in developed societies tend to be pessimistic about their country and the world but optimistic about their own lives.”

Your Apps Know Where You Were Last Night, and They’re Not Keeping It Secret ( – “Dozens of companies use smartphone locations to help advertisers and even hedge funds. They say it’s anonymous, but the data shows how personal it is.”

7 Digital Privacy Tools You Need To Be Using Now ( “Everyone wants your data. Here’s how to protect it.”

Expectation vs. Reality ( – “As humans we seek the ordered, the linear, and the smooth, but the world gives us the chaotic, the curved, and the jagged.”

Thanks for reading!
Ashby Daniels

Disclaimer: Any opinions are those of Ashby Daniels and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James
does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available
data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or
loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks. It is not possible to invest directly in an index. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

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